ACKNOWLEDGEMENT

I express my deep sense of gratitude to for his valuable help and granting
permission to do a project work in course of the internship programme atNALCO,
Bhubaneswar for a period of 21 days w.e.f 15th May, 2019.

I am equally thankful to Mr. Ashok Kumar Negi (manager law) for his earnest help
and guidance provided to me during the above stated programme. I would also like
to thank other officials and staff members who rendered their help during the
period of my project work.And special thanks to my co-interns for their support.

TRILOCHAN
PANDA
 About NALCO

Nalco Aluminium Company, abbreviated as NALCO (incorporated in 1981) has

units in Odisha at places like Anugul and Damanjodi. It was incorporated as a
public sector enterprise of the Ministry of Mines,

Government of India 1981. It is Asia’s largest , and sixth largest, integrated

aluminium complex, encompassing Bauxite mining, alumina refining, aluminium
smelting and casting, power generation, rail and port operations. Commissioned
during 1985-87 NALCO produced and exported alumina and aluminium. The main
units of NALCO are at Damanjodi ( mines and refinery complex) and Nalconagar,
Anugul(smelter and power plant complex). The company received Indira
Priyadarshini Vrikshamitra award from Government of India for its contribution in
the field of afforestation and wasteland development.
 BACKGROUND/OBJECTIVE

In India, the relation between Agent and Principal is contractual in nature i.e. they have
their own set of terms and conditions of the contract decided mutually. There is a legal
relationship between two people whereby one person acts on behalf of the other. The
background is that the principal hires an agent to do some work or manage some task on
his behalf and the agent deals with the third person.

According to Section 182:

“An “agent” is a person employed to do any act for another or to represent another in
dealings with third person. The person for whom such act is done, or who is so
represented, is called the “principal”.

It is to be noted that the act of the agent binds the principal in the same way in which the
principal would be bound if he does that act himself. The task assigned to agent may be
an express one or implied one.

For e.g., If A authorizes B (A’s agent) to sell his house to a third person and B does so, A
becomes bound for the sale of the house to the third person in the same manner as if A
himself contracted to sell the house to third person. The agent only being a connecting
link between his principal and the third person. Contracts made through agents and
obligations arising out of the acts done by agent, may be enforced in the same way, and
will have the same legal consequence, as if the contract had been entered into and the acts
done by the principal in the person.

In light of definition of agent according to Section 182, Dhavan, J. observed:

“According to this definition, an agent never acts on his own behalf but always on behalf
of another. He either represents his principal in any transactions or dealings with a third
person, or performs an act for the principal. In either case, the act of the agent will be
deemed in law to be not his own but of the principal. The crucial test of the status of an
agent is that his acts bind the principal.”

Different Kinds of Agents:

On the basis of authority given to the agents to act on the behalf of the principal, they are
of following kinds:
1.) Auctioneers

An Auctioneer is an agent who sells goods or other property by auction, i.e., by open. He
is only authorized to sell the goods, and not to give warranties on behalf of the seller,
unless expressly said in this regard.

2.) Factors

A Factor is a mercantile agent (an agent who is authorized by a principal to buy or sell
goods, and/or to raise a loan by using the principal’s goods as a collateral) who is
entrusted with the possession of goods for the purpose of sale. He has the authority to sell
the goods on credit and also to receive the price from the buyer.

As per Section 171 of the Indian Contract Act, a Factor has right of general lien over the
goods belonging to his principal, which are in his possession, for the general balance of
account.

3.) Brokers

A Broker is an agent who has the power to negotiate the sale or purchase of goods on
behalf of his principal, with a third person. Unlike a factor, he does not hold the
possession of the goods. Hr makes the two parties enter into a contract. He gets his
commission whenever any transaction materializes through his efforts.

4.) Del Credere Agents

A del credere agency is a type of principal-agent relationship where the agent acts not
only as a salesperson or broker for the principal, but also as a guarantor of credit
extended to the buyer. He is an exception to the rule that an agent is not answerable to his
principal for the failure of the third party to perform the contract. A del credere agent is a
mercantile agent, who on payment of some extra commission , known as del credere
commission, guarantees the performance of the contract by the third person. On the
failure of the third person to pay, the principal can make the del credere agent liable.

LAW OF AGENCY- FEATURES

1.) The Principal should be competent to contract- Section 183

As per Section 183, “any person who is of the age of majority according to the law to
which he is subject and who is of sound mind, may employ an agent.”
There is a contractual relationship created between the principal and the third person by
the agent. Therefore, it is necessary that the principal and the third person are competent
to contract. If a person himself is not competent to contract he cannot make a contract
through an agent either. Thus, if the principal is minor or of unsound mind, he is
incapable of being bound through the acts of his agent.

An exception here is that the minor himself cannot appoint an agent, but there is nothing
in Section 183 which prohibits the guardian of minor from appointing the agent.

2.) The Agent may not be competent to contract- Section 184

As per Section 184, “As between the principal and a third person, any person may
become an agent but no person who is not of the age of majority and of sound mind can
become an agent, so as to be responsible to his principal according to the provisions in
that behalf herein contained.”

The capacity of the agent are of two types i.e capacity of the agent to act on behalf of the
principal so as to bind the principal to the third person; and, the capacity of the agent to
bind himself by a contract between himself and the principal. In the first type, Section
184 of the Indian Contract Act provides that, any person can become an agent even
though he is not competent to contract.

But, in the second type where it is about the capacity of the agent to bind himself by a
contract between himself and the principal, it is necessary that the agent should be
competent to contract.

Thus, if an agent is minor, through him a valid contractual relationship will be created
between the principal and the third person, though such an agent himself will not be
responsible for his acts to his principal.

3.) No consideration is necessary to create an Agency- Section 185

As per Section 185, “No consideration is necessary to create an agency.” The basis on
which the contract of Agency is created is that the Principal is bound by the acts done by
the agent on his behalf and that justifies this section. The law thus do not require any
consideration for the validity of contract of agency.

CREATION OF AGENCY
In a contract of Agency, the Principal is bound by the acts of the Agent and the Agent has
the power now to bind his Principal through following modes:
1) By Actual Authority– A principal is bound by the acts done by his agent with his
authority. The authority to act on behalf of the principal may be conferred on the
agent either expressly or impliedly. An authority is said to be express when it is
given by words spoken or written and an authority is said to be implied when it is
to be inferred from the circumstances of the case; things were spoken or written,
or the ordinary course of dealing, may be accounted circumstances of the case -
Section 187.

2) In a situation of Emergency, an agent can act on behalf of the principal for

preventing the principal from the loss as would be done by a person of ordinary
prudence, in his own case, under similar circumstances.-Section 189

3) A person may be liable as a principal because of his conduct, on the basis of the
law of estoppel. This means, at times an agent has no authority to act of the
principal, but the principal by his conduct creates an impression in the mind of the
third person that the agent has an authority to act on his behalf. In such cases, the
principal is liable towards the third person for the acts done by the agent, on the
ground of the application of the law of estoppels- Section 237

4) By Ratification. Even though the agent’s act has been done without the
principal’s prior authority, he may ratify such an act and make himself liable for
the same. Here, the principal may be bound by the act of the agent done without
any kind of authority, and that is when the principal ratifies, i.e., accords
subsequent approval, to an act done without the principal’s authority or
knowledge, but on his behalf, he has an option either to disown the act or to satisfy
the same.- Section 196 to 200

5) By a husband-wife relationship. Agency in the relationship of husband and wife

arises either by cohabitation or by necessity. It is an agency by cohabitation when
a married woman cohabiting with her husband is presumed to have the power to
pledge the credit of her husband for necessaries according to the life of the family.
Hence, the authority is presumed to be there when the husband and wife are
cohabiting in a domestic establishment. And, agency by necessity arises even if
the husband and wife are not living together she could pledge the credit of her
husband. Such authority was presumed when neither the husband was supporting
her nor had she the means of supporting herself. However, there is no such agency
in India as a wife can claim maintenance under her personal law.
 RIGHTS AND LIABILITIES OF AGENTS
A. RIGHTS OF AGENTS
Section 217-225 deals with rights of agents and simultaneously lays down duties for the
Principal.

1.) Right to Remuneration- Section 219

“Section 219. When agent’s remuneration becomes due.- In the absence of any special
contract, payment for the performance of any act is not due to the agent until the
completion of such act: but an agent may detain moneys received by him on account of
goods sold, although the whole of the goods consigned to him for sale may not have been
sold, or although the sale may not be actually complete.”

An agent is entitled to remuneration for the work of agency done by him, but an agent’s
remuneration does not become due until the completion of the act assigned to him.
According to Section 219, this rule is subject to any special contract between the
principal and the agent. However, as per the rule laid down in Section 220, an agent who
is guilty of misconduct in the business of agency is not entitled to any remuneration in
respect of that part of the business which he has misconducted.

In Saraswati Devi v. Motilal, it was held that according to the nature of this agreement,
the remuneration was payable to the plaintiff when he found a purchaser who was ready,
willing and able to purchase the property and since he had done that, he was entitled to
his commission.

2.) Right to retain sums- Sections 217 and 218

The agent has a duty to pay to his principal all sums received on principal’s account
(Section 218). But he also has a right to retain, out of any sums received on account of
the principal in the contract of agency, all money due to himself in respect of advances
made or expenses properly incurred by him in conducting such contract and also such
remuneration as may be payable to him for acting as an agent(Section217).

3.) Right of lien on principal’s property- Section 221

According to Section 221, in the absence of any contract to the contrary, an agent is
entitled to retain goods, papers and other property, whether movable or immovable, of the
principal received by him, until the amount due to himself for commission, disbursements
and services in respect of the same has been paid or accounted for to him.
A purchasing agent can exercise lien over the goods purchased for his principal until the
amount due to hi, for such purchases has been paid. Such right is, however, subject to an
agreement to the contrary. Moreover, such a right is lost, when the agent parts with the
possession of the goods.

4.) Right to be indemnified- Sections 222-224

Section 222- Indemnity for lawful acts

According to this section, the employer of an agent is bound to indemnify him against the
consequences of all lawful acts done by such agent in exercise of the authority conferred
upon him.

Section 223- Indemnity for civil wrongs

“Where one person employs another to do an act, and the agent does the act in good faith,
the employer is liable to indemnify the agent against the consequences of that act, though
it causes an injury to the rights of third person.”

For e.g., in cases of tort.

Section 224- No indemnity in case of criminal offences

According to Section 224, “Where one person employs another to do an act which is
criminal, the employer is not liable to the agent, either upon an express or an implied
promise to indemnify him against the consequences of that Act."

(a) A employs B to beat C, and agrees to indemnify him against all consequences of the
act. B thereupon beats C, and has to pay damages to C for so doing. A is not liable to
indemnify B for those damages. (a) A employs B to beat C, and agrees to indemnify him
against all consequences of the act. B thereupon beats C, and has to pay damages to C for
so doing. A is not liable to indemnify B for those damages."

(b) B, the proprietor of a newspaper, publishes, at A’s request, a libel upon C in the
paper, and A agrees to indemnify B against the consequences of the publication, and all
costs and damages of any action in respect thereof. B is sued by C and has to pay
damages, and also incurs expenses. A is not liable to B upon the indemnity. (b) B, the
proprietor of a newspaper, publishes, at A’s request, a libel upon C in the paper, and A
agrees to indemnify B against the consequences of the publication, and all costs and
damages of any action in respect thereof. B is sued by C and has to pay damages, and
also incurs expenses. A is not liable to B upon the indemnity."
Thus when the agent commits a crime at the instance of the principal, the agent cannot
claim indemnity from the principal against the consequences of the crime, even though
the principal has expressly or impliedly promised to indemnify him.

5.) Right to compensation for damages due to principal’s neglect- Section 225

According to section 225, the principal must make compensation to his agent if any
injury is caused to such agent by the principal’s neglect or want of skill.

For e.g., A employs B as a bricklayer in building a house and puts up the scaffolding
himself that is unskillfully put up, and B in consequence is hurt. A must give
compensation to B.

Vicarious liability of the principal

Section 238 provides that when there is misrepresentation by an agent while making an
agreement on behalf of the principal, apart from affecting the validity of the contract, an
agent's fraud or wrongful act makes a principal liable if the agent is acting in the course
of the principal's business. Principal's liability is based on the rule "Qui facit per alium
facit per se", which means that the act of an agent is the act of the principal. The point
may be explained by referring to the case of Lloyd v. Grace, Smith & Co. In this case one
Mrs. Lloyd, who owned two cottages but was not satisfied with the income from them,
went to the office of Grace Smith Co., a firm of solicitors, to consult them about the
matter of her property. She was attended by the firm's managing clerk. The managing
clerk, who was acting as firm's agent, advised her to sell the two cottages and then invest
the money in a better way. She was asked to sign two documents, which were supposed
to be sale deeds. In fact, the documents got signed were gift deeds in the personal name
of the managing clerk. The managing clerk then disposed of the cottages and
misappropriated the proceeds. He had acted without the principal's knowledge and solely
for his personal gain. It was held that since the agent was acting in the course of the
principal's business, the principal was liable for fraud.

Personal liability of the Agent

1. When agent acts on behalf of a foreign principal
When an agent has entered into a contract for the sale or purchase of goods on behalf of
a principal resident abroad, the presumption is that the agent undertakes to be personally
liable for the performance of such a contract. The object of this provision is to avoid
hardship to a third person which would be there in suing the Principal, or enforcing a
decree against him. The presumption that in such a case the agent is personally bound can
be rebutted by a contract between the third person and the agent.

In W.B. Essential Commodities Supply Corp. Ltd. V. Koren T.T. Corpn. there was a
contract of carriage of goods from port outside India to port within India. Goods landed
in India were in short quantity. For short landing of goods the plaintiff sued the foreign
principal. Thereafter the plaintiff filed another suit against the Indian agent.

2. When agent acts for an Undisclosed Principal

Another exceptional situation, when an agent is presumed to be personally liable

according to Section 230 (2), is "where agent does not disclose the name of his principal.
When the age discloses that somebody is the principal but he does not disclose hi name,
there arises a presumption that he himself undertakes to be personally liable.

When the agent does not disclose that he is somebody's agent i.e, he contracts in his own
name, he is himself bound by the contract with the third person. When the principal is
undisclosed, the liability under Section 230 is of the agent only and the principal cannot
be sued in such a case.

3. When the principal, though disclosed, cannot be sued

Another exceptional situation, when the agent is presumed to have agreed to be

personally liable, as provided in Section 230 (3) is "where the principal, though
disclosed, cannot be sued."

When the principal is incompetent to contract, e.g., he is a minor, a contract entered into
on his behalf cannot be enforced against him. In such a case, the agent is personally liable
in respect of that contract. Similarly, if the directors of a company which has yet to be
formed, make a contract on behalf of the non-existent company, they incur personal
liability.

4. When there is a contract for the agent's personal liability

Section 230 which provides that an agent can neither enforce contract nor is personally
liable for the same begins with the words: in the absence of any contract to that effect." It
means that whenever there is a contract indicating agent's personal liability, he can be
made personally liable. The above mentioned three exceptional situations when the
personal liability of the agent arises are mere presumptions when the agent is deemed to
have agreed to be personally liable. These situations are not exhaustive. There may be
many other cases also where it may be shown that the agent agreed to be personally
liable. In Alliance Mills v. India Cements Ltd. the agent entered into a contract for the
purchase of goods in his own name describing himself as the purchaser. He did not
disclose that he was acting as an agent. The contract note itself cast all obligations on the
purchaser. It was held that in such a situation, the agent could liable for the same. enforce
the contract, and also could be made personally liable for the same.

5. When an agent makes a breach of some legal obligation

When there is some legal obligation such as contractual obligation or a statutory duty cast
upon the agent, he must fulfil the same, otherwise he renders himself personally liable for
the breach of such an obligation. Similarly, when the agent commits a tort against a third
person, that also creates his personal liability for the consequence thereof. In Nepal Food
Corporation v. U.P. Import & Export Ltd the plaintiff loaded rice in a vessel for carriage
by sea. The agent of the owner of the ship who was under contractual as well as statutory
obligation to issue the bill of lading withheld the same. It was held that by doing so, the
agent had not only made a breach of his contractual duties but also committed the tort of
conversion. He along with his principal, i.e., the ship owner was held to be liable for
damage in respect of the loss suffered by the consignor as a consequence of the delay in
the issue of the bill of landing.

6. Liability of pretended agent

When an agent having no authority to act as an agent does so, the person on
whose behalf the act is done, i.e., the principal has option either to disown the act
or to ratify the same. If the act is ratified, the same effects will follow as if the act
had been done by prior authority If, however, the principal disowns the act, i.e.,
he does not ratify the same, the pretended agent himself will be liable. Section
235, which contains a provision in this regard, is as follows:

"235. Liability of pretended agent.-A person unruly representing himself to be the

authorized agent of another, and thereby inducing a third person to deal with him
as such agent, is liable, if his alleged employer does not ratify his acts, to make
compensation to the other in respect of any loss or damage which he has incurred
by so dealing."
When an agent having certain amount of authority, goes beyond the authority
conferred upon him, and the third person is misled to believe that the agent has
an authority for the act he is doing, then also the agent can be made personally
liable for the breach of warranty of authority. The agent is also liable to
compensate the principal for the loss suffered by him due to such unauthorized
act of the agent.

CASES:

One of the leading cases is :-

1. Shree Digvijay Cement Co. Ltd. vs State Trading Corporation of India Ltd.

There was a contract for purchase of cement from the plaintiff by the State Trading
Corporation for supply of cement to foreign purchaser. Craft papers (Packaging
Material) was imported by plaintiff for and on behalf of STC. There was conversion
of papers into bags by plaintiff for use of STC. Suit was filed for recovery of amount
spent on unutilized craft paper bags by plaintiff against STC. The Delhi High Court
held that suit was bound to be decreed in view of relationship of principal and agent in
respect of transaction regarding packaging material between the parties.

2. Jagannath Pattnaik vs. Sri Pitambar Bhupathi Hari Chandan AIR 1954 Ori 241 [At
High Court, Odisha]

In the present case, the relationship of Dewan and proprietor is of such a “close and
confidential” nature that the death of any one of them will have the effect of rendering the
contract frustrated (“no dewan will be able to discharge his duties unless he is able to
adjust himself with the whims of the proprietor”). Such a relationship is depended upon
ability and skills of dewan on one hand and temperament and nature of proprietor on
another.

Neither of them had anticipated that the other would die during the 7 year period as
stipulated by the contract, since both, despite being old, did not suffer from any ailment
to warrant such an anticipation. Furthermore, considering the previous relationship
between the plaintiff and K, it is evident that the contractual obligations created in this
case were personal in nature.

Conclusion
Agency, in law, the relationship that exists when one person or party (the principal)
engages another (the agent) to act for him—e.g., to do his work, to sell his goods, to
manage his business. The law of agency thus governs the legal relationship in which the
agent deals with a third party on behalf of the principal. The competent agent is legally
capable of acting for this principal vice-versa the third party. Hence, the process of
concluding a contract through an agent involves a twofold relationship. Thus, an agent’s
effective powers in dealing with outsiders may extend to transactions that he is under a
duty to his principal not to undertake, leading to a situation characterized as “apparent
authority.”